solution chapter 1 dayag
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Chapter 1
Problem IRequirement 1: Assuming that A and B agree that each partner is to receive a capital credit equal to the agreed values of the net assets each partner invested: To record adjustments: nothing to adjust since both of them have no set of books. To close the books: nothing to close since both of them have no set of books. To record investments: Partnership books:
Cash………………………………………………………………………………. 120,000Inventory…………………………………………………………………………. 120,000Equipment……………………………………………………………………….. 240,000
A, capital………………………………………………………………... 480,000 Initial investment.
Cash……………………………………………………………………………….. 120,000Land……………………………………………………………………………….. 240,000Building……………………………………………………………………………. 480,000
Mortgage payable……………………………………………………. 240,000 B, capital……………………………………………………………….. 600,000
Initial investment.
Requirement 2: Assuming that A and B agree that each partner is to receive an equal capital interest. To record adjustments: nothing to adjust since both of them have no set of books. To close the books: nothing to close since both of them have no set of books. To record investments: Partnership books: Bonus Approach: Cash…………………………………………………………………………… 120,000
Inventory……………………………………………………………………… 120,000Equipment……………………………………………………………………. 240,000
A, capital…………………………………………………………….. 480,000
Cash…………………………………………………………………………… 120,000Land……………………………………………………………………………. 240,000Building………………………………………………………………………… 480,000
Mortgage payable………………………………………………… 240,000 B, capital.……………………………………………………….…… 600,000
B, capital……………………………………………………………………….. 60,000A, capital……………………………………………………………… 60,000
Total agreed capital (P480,000 + P600,000)….P 1,080,000 Multiplied by: Capital interest (equal)………... 1/2 Partner’s individual capital interest…………….P 540,000
Less: A’s capital interest………………………..…. 480,000 Bonus to A…….……………………………………..P 60,000
Revaluation (Goodwill) Approach:
Cash…………………………………………………………………………… 120,000Inventory……………………………………………………………………… 120,000Equipment……………………………………………………………………. 240,000
A, capital…………………………………………………………….. 480,000
Cash…………………………………………………………………………… 120,000Land……………………………………………………………………………. 240,000Building………………………………………………………………………... . 480,000
Mortgage payable………………………………………………… 240,000 B, capital.……………………………………………………….…… 600,000
Assets (or goodwill or intangible asset)…………………………………... 120,000A, capital…………………..……………………………………….. 120,000
Total agreed capital (P600,000 / 1/2)………..….P1,200,000Less: Total contributed capital (P480,000 +
P 600,000)………………………………....… 1,080,000Goodwill to A……………..………………………….P 120,000
Problem II
Agreed Fair ValuesInvested
by JohnInvested by Jeff
Invested by Jane
Cash P100,000 - - - - - -Equipment P 110,000 - - -Total assets 100,000 P 110,000 0Note payable assumed by partnership - - - 30,000 - - -Net assets invested P100,000 P 80,000 P 0
1. Bonus Method 2. Goodwill Method (Revaluation of Asset)Cash 100,000
Cash 100,000
Equipment 110,000
Equipment 110,000
Goodwill 90,000
Note Payable 30,00 Note Payable 30,00
John, Capital 60,00 John, Capital 90,00
Jeff, Capital 60,00 Jeff, Capital 90,00
Jane, Capital 60,00 Jane, Capital 90,00
2. The bonus method is used when John and Jeff recognize that Jane is bringing something of value to the firm other than a tangible asset, but they do not want to recognize an intangible asset. To equalize the capital accounts, P40,000 is transferred from John's capital account and P20,000 is transferred from Jeff's capital account.
The goodwill method is used when the partners recognize the intangible nature of the skills Jane is bringing to the partnership. However, the capital accounts are equalized by recognizing an intangible asset and a corresponding increase in the capital accounts of the partners. Unless the intangible asset can be specifically identified, such as a patent
being invested, it should not be recognized, because of a lack of justification for goodwill in a new business.
Problem III1. (a) Cash 13,000
Accounts Receivable 8,000Office Supplies 2,000Office Equipment 30,000
Accounts Payable 2,000Tom, Capital 51,000
Cash 12,000Accounts Receivable 6,000Office Supplies 800Land 30,000
Accounts Payable 5,000Mortgage Payable 18,800Julie, Capital 25,000
(b) Tom, Drawing 15,000Cash 15,000
Julie, Drawing 12,000Cash 12,000
(c) Income Summary 50,000Tom, Capital P50,000 (P51,000/P76,000) 33,553Julie, Capital P50,000 (P25,000/P76,000) 16,447
Tom, Capital 15,000Julie, Capital 12,000
Tom, Drawing 15,000Julie, Drawing 12,000
2. TOM AND JULIE PARTNERSHIPStatement of Changes in Partners' CapitalFor the Year Ended December 31, 20x4
Tom Julie TotalCapital balances, Jan. 1 P 0 P 0 P 0Add: Additional investments 51,000 25,000 76,000
Net income allocation 33,553 16,447 50,000 Totals P 84,553 P 41,447 P126,000Less: Withdrawals 15,000 12,000 27,000 Capital balances, Dec. 31 P 69,553 P 29,447 P99,000
Problem IVBook of H is to be retained by the new partnership. The following procedures are to be followed:Individual versus Sole Proprietor
Books ofIndividual
*Books ofSole
ProprietorAdjusting entries N/A Yes
Closing entries (real accounts) N/A NoInvestments Yes**Balance Sheet Yes
* Books of H; Partnership books ** Investments of individual; additional investments or withdrawals of sole proprietor.
1. Books of Sole Proprietor (H): a. To record adjustments:
a. H, capital………………………………………………………………… 1,800Allowance for doubtful accounts……………………………. 1,800
Additional provision computed as follows: Required allowance: 10% x P48,000 = P 4,800Less: Previous balance………………… 3,000Additional provision…………………… P 1,800
b. Interest receivable or accrued interest income…………………. 3,600H, capital…………………………………………………………… 3,600
Interest income for nine months computed as follows:P60,000 x 8% x 9/12 = P3,000.
c. H, capital………………………………………………………………….. 6,000Merchandise inventory………………………………………….. 6,000
Decline in the value of merchandise. P27,000 – P21,000 = P6,000.
d. H, capital…………………………………………………………………. 4,800Accumulated depreciation……………………………………. 4,800
Under depreciation.
e. Prepaid expenses………………………………………………………... 2,400H, capital…………………………………………………………… 2,400
Expenses paid in advance.
H, capital…………………………………………………………………… 7,200Accrued expenses…………………………………………………. 7,200
Unrecorded expenses.
Note: All adjustment that reflects nominal accounts should be coursed through the capital account, since all nominal accounts are already closed at the time of formation.
b. To close the books: nothing to close since the books of H will be retained. c. To record investment:
Cash……………………………………………………………………………. 116,100 I, capital……………………………………………………………… 116,100
Initial investment computed as follows:
Unadjusted capital of H………………………………P 246,000Add (deduct): adjustments:
a. Doubtful accounts...……………………...( 1,800)b. Interest income…………………………….. 3,600c. Decline in the value of merchandise….( 6,000)d. Under-depreciation……………………….( 4,800)e. Prepaid expenses………………………….. 2,400 Accrued expenses………………………...( 7,200)
Adjusted capital balance of H……………..……...P 232,200Divided by: Capital interest of H…………………… 2/3Total agreed capital…………………………….…….P 348,300Multiplied by: Capital interest of I……………..…… 1/3Investment of I…………………………………………P 116,100
Note: The initial investment of H is already recorded since his books are already retained. No further entry is required since there are no additional investments or withdrawals made by H.
2. The balance sheet for both cases presented above is as follows:
HI PartnershipBalance Sheet
November 1, 20x4
AssetsCash P 236,100Accounts receivables P 48,000Less: Allowance for doubtful accounts………...........
4,800 43,200
Notes receivable……...................................................
60,000
Interest receivable………………..................................
3,600
Merchandise Inventory................................................
21,000
Prepaid expenses…………..........................................
2,400
Equipment (net)………….............................................
P 72,000
Less: Accumulated depreciation………………........ 10,800 61,200Total Assets....................................................................
P 427,500
Liabilities and CapitalLiabilities Accrued expenses…….. .......................................
P 7,200
Accounts payable...................................................
12,000
Notes payable…………...........................................
60,000
Total Liabilities................................................................
P 79,200
Capital........................................................................... H, capital………………………..................................
P 232,200
I, capital…………………...........................................
116,100
Total P 348,300
Capital..................................................................Total Liabilities and Capital..........................................
P 427,500
Problem VNew set of books. The following procedures are to be followed:
Sole Proprietor versus Sole Proprietor Books of
Sole Proprietor
(Baker)
Books ofSole
Proprietor(Carter)
*New Set of Books
Adjusting entries Yes YesClosing entries (real accounts)
Yes Yes
Investments Yes**Balance Sheet Yes
* Partnership books ** Additional investments or withdrawals of sole proprietors.
1. Books of Sole Proprietor a. To record adjustments:
Books of J Books of Ka. J, capital…………………………12,000 Merchandise Inventory…… 12,000 Worthless inventory.
a. Merchandise Inventory………… 6,000 K, capital……………………… 6,000 Upward revaluation.
b. J, capital………………………… 7,200 Allowance for doubtful Accounts………………….. 7,200 Worthless accounts.
b. K, capital……….…………………. 3,000 Allowance for doubtful accounts……………………. 3,000 Additional provision. Required allowance: 5% x P180,000…….. P9,000 Less: Previous Balance……….. 6,000 Additional Provision....…………P3,000
c. Rent receivable…………………12,000 J, capital……………………. 12,000 Income earned.
c. K, capital……………………………. 9,600 Salaries payable………………. 9,600 Unpaid salaries.d. Interest receivable…………………1,200 K, capital………….................. 1,200 Interest income from August 17 to October 1. P60,000 x 16% x 45/360
e. J, capital………………………… 8,400 Office supplies………………. 8,400 Expired office supplies.
f. J, capital………………………… 6,000 Accumulated depreciation - equipment……………… 6,000 Under-depreciated.
g. K, capital……………………………12,000 Accumulated depreciation- Furniture and fixtures……… 12,000 Under-depreciated.
h. J, capital…………………………. 1,800 Interest payable……………. 1,800 Interest expense from July 1 to October 1. P60,000 x 12% x 3/12
i. Patent………………………………. 48,000 K, capital…………………….. 48,000 Unrecorded patent.
Unadjusted capital of J…….……….P 372,000Add(deduct): adjustments: a. Worthless merchandise……..( 12,000) b. Worthless accounts………….( 7,200) c. Rent income……………….…. 12,000 e. Office supplies expense…….( 8,400) f. Additional depreciation……( 6,000) h. Interest expense………………( 1,800)Adjusted capital of J…………………P348,600
Unadjusted capital of K..……………...P432,000Add(deduct): adjustments: a. Merchandise revaluation…….. 6,000 b. Worthless accounts…………….( 3,000) c. Salaries…………….…….………..( 9,600) d. Interest income………………….. 1,200 g. Additional depreciation………( 12,000) h. Patent………….……….…………. 48,000Adjusted capital of K….………………..P462,600
b. To close the books: Books of J Books of K
Allowance for doubtful accounts................................. 12,000Accumulated depreciation – equipment…………………… 60,000Accounts payable……………159,600Notes payable………………… 60,000Interest payable………………. 1,800J, capital…….…………………. 348,600 Cash………………………… 90,000 Accounts receivable……. 216,000 Merchandise inventory…. 180,000 Office supplies…………….
Allowance for doubtful accounts................................. 9,000Accumulated depreciation – furniture and fixtures ………. 36,000Accounts payable……………. 120,000Salaries payable………………. 9,600K, capital…….…………………. 462,600 Cash…………………………. 54,000 Accounts receivable…….. 180,000 Notes receivable…………. 60,000 Interest receivable………... 1,200
24,000 Equipment…………………. 120,000 Rent receivable…………... 12,000 Close the books of J.
Merchandise inventory….. 150,000 Furniture and fixtures.…….. 144,000 Patent………….……………. 48,000 Close the books of K..
2. New Set of Books - To record investments:
Cash………………………………………………………………. 90,000Accounts receivable………………………………………….. 216,00
0Merchandise inventory………………………………………..
180,000
Office supplies…………………………………………………..
24,000
Equipment (net)………………………………………………...
60,000
Rent Receivable……………………………………………….. 12,000 Allowance for doubtful accounts…………………….
12,000
Accounts payable………………………………………..
39,600
Notes payable…………………………………………….
60,000
Interest payable…………………………………………..
1,800
J, capital……………………………………………………
468,600
Cash………………………………………………………………. 54,000Accounts receivable………………………………………….. 180,00
0Notes receivable………………………………………………. 60,000Interest receivable……………………………………………..
1,200
Merchandise inventory………………………………………..
150,000
Furniture and fixtures (net)…..………………………………..
108,000
Patent…………..………………………………………………...
48,000
Allowance for doubtful accounts…………………….
9,000
Accounts payable………………………………………..
120,000
Salaries payable….……………………………………….
9,600
K, capital……………………………………………………
462,600
3. H I
Unadjusted capital (refer to 1a) P372,000 P432,000Adjusted capital (refer to 1b) 348,600 462,600Net adjustments (debit)/credit (P 23,400) P 30,600
4. The balance sheet after formation is as follows:
J and K Partnership Balance Sheet
October 1, 20x4
AssetsCash...............................................................................
P 144,000
Accounts receivables .................................................
P396,000
Less: Allowance for doubtful accounts……….........
21,000 375,000
Notes receivable……...................................................
60,000
Interest receivable………………..................................
1,200
Rent receivable……………….......................................
12,000
Merchandise Inventory................................................
330,000
Office supplies...............................................................
24,000
Equipment (net)………….............................................
60,000
Furniture and fixtures (net)………………….................
108,000
Patent……………………...............................................
48,000
Total Assets....................................................................
P1,162,200
Liabilities and CapitalLiabilities Salaries payable……………...................................
P 9,600
Accounts payable..................................................
159,600
Notes payable…………..........................................
60,000
Interest payable……………....................................
1,800
Total Liabilities...............................................................
P 231,000
Capital J, capital………………………..................................
P 468,600
K, 462,600
capital………………….........................................Total Capital..................................................................
P 931,200
Total Liabilities and Capital..........................................
P1,162,200
Problem VI1. Total assets – P1,094,000, at fair value2. Total liabilities - P540,000, at fair value3. Total capital - P554,000 (P1,094,000 – P540,000)
Balance SheetJanuary 1, 2009
Assets Liabilities and CapitalCash P 70,000 LiabilitiesAccount Receivable (net) 108,000 Accounts Payable P 190,000Merchandise Inventory 208,000 Mortgage Payable __350,000Building (net) 600,000 Total Liabilities P 540,000Furniture and Fixture (net) 108,000 Capital:Accounts Payable L, Capital P 260,000Mortgage Payable M, Capital ___294,00
0__________ Total Capital P 554,000
Total Assets P1,094,000
Total Liabilities and Capital
P 1,094,000
Multiple Choice Problems 1. c – P45,0002. d – the prevailing selling price which is also the fair market value.3. b - (P400,000 - P190,000) + [P270,000 - (P400,000 - P190,000)]/3 = P230,0004. c5. b - P60,000 + P80,000 + P100,000 = P240,0006. c - P30,000 + P50,000 + P25,000 = P105,000/3 = P35,000 - P30,000 = P5,0007. a
Total Agreed Capital (P50,000/40%)…………………………...............
P125,000
Less: Total Contributed Capital (P65,000 + P50,000)……..................
115,000
Goodwill (revaluation of assets upward)…………………..................
P 10,000
Assets, fair value (P20,000 + P60,000 + P15,000)…………………………P 95,000Less: Liabilities assumed…………………………………………………..… 30,000Bill, capital..…………………………………………………………………… P 65,000
8.
b The capital balances of William (WW) and Martha (MM) at the date of partnership formation are determined as follows:
William Martha Cash P20,000 P 30,000Inventory - 15,000Building - 40,000Furniture and equipment 15,000 - Total P35,000 P 85,000Less mortgage assumed
by partnership (10,000 )Amounts credited to capital P35,000 P 75,000
9. cEvan Helen
Unadjusted capital 59,625 33,500Add (deduct) adjustments: Allowance ( 555) ( 405) Depreciation ______ ( 900)Adjusted capital 59,070 32,195
10. c: Jones – P80,000 + P400,000 – P120,00 = P360,000 Smith – P40,000 + P280,000 – P60,000 = P260,000
11. c – P35,374 – refer to No. 1212. c – P17,687
Unadjusted capital of CC………………………………………………………………….P 33,000Add (deduct): adjustments-
Allowance for doubtful accounts (3% x P14,200)………………………………...( 426)Increase in merchandise inventory (P23,000 – P20,000)………………………… 3,000Prepaid salary………………………………………………………………………….... 600Accrued rent expense…………………………………………………………………( 800)
Adjusted capital balance of CC…………………………………………………………P 35,374Divided by: Capital interest of CC…………………………………………………….... 2/3Total capital of the partnership……………………………………………………………P 53,061Less: Adjusted capital balance of CC………………………………………………….. 35,374Capital balance of DD…………………………………………………………………….. P 17,687
13. aTotal assets:
Cash P 70,000Machinery 75,000Building 225,000 P 370,000
Less Liabilities (Mortgage payable) 90,000Net assets (equal to FF’s capital account) P 280,000
14. dFF, capital (see no.13) P
280,000Divide by FF’s P & L share percentage 70%Total partnership capital P 400,000Required capital of CC (P400,000 x 30%) P 120,000Less: Assets already contributed:
Cash P 30,000Machinery and equipment 25,000Furniture and fixtures 10,000
65,000Cash to be invested by CC P 55,000
15. aAgreed Fair Values Invested
by JohnInvested by Jeff
Invested by Jane
Cash 100,000 - - - - - -Equipment
110,000 - - -
Total assets 100,000 110,000 0Note payable assumed by partnership - - - 30,000 - - -Net assets invested 100,000 80,000 0
Bonus Method Goodwill Method
Cash 100,000
Cash 100,000 Equipment 110,000
Equipment 110,000 Goodwill 90,00
Note Payable 30,00 Note Payable 30,00
John, Capital 60,00 John, Capital 90,00
Jeff, Capital 60,00 Jeff, Capital 90,00
Jane, Capital 60,00 Jane, Capital 90,00
Note:The bonus method is used when John and Jeff recognize that Jane is bringing something of value to the firm other than a tangible asset, but they do not want to recognize an intangible asset. To equalize the capital accounts, P40,000 is transferred from John's capital account and P20,000 is transferred from Jeff's capital account.
The goodwill method is used when the partners recognize the intangible nature of the skills Jane is bringing to the partnership. However, the capital accounts are equalized by recognizing an intangible asset and a corresponding increase in the capital accounts of the partners. Unless the intangible asset can be specifically identified, such as a patent being invested, it should not be recognized, because of a lack of justification for goodwill in a new business.
16. c – refer to No. 15 for computation.
17. a FF, capital: Unadjusted balance P 57,000 Adjustments:
Accumulated depreciation ( 1,500)Allowance for doubtful account (12,000)Adjusted balance P 43,500
GG, capital: Unadjusted balance P 49,500 Adjustments:
Accumulated depreciation ( 4,500)Allowance for doubtful account ( 4,500)Adjusted balance P 40,500
18. c GG’s adjusted capital (see no. 17) P 40,500Divide by GG’s P & L share percentage 40%Total partnership capital P 101,250Multiply by FF’s P & L share percentage 60%FF’s capital credit 60,750FF’s contributed capital (see no. 1) 43,500
Additional cash to be invested by FF P 17,250
19. dTotal capital of the new partnership (see no. 20) P 296,875Multiply by RR’s interest 20%Cash to be invested by RR P 59,375
20. (a) OO PP Total
(60%) (40%) Unadjusted capital balances P133,000 P108,000
P241,000Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,600 P237,500
Total capital before the formation of the new partnership (see above) P 237,500Divide by the total percentage share of OO and PP (50% + 30%) 80%Total capital of the partnership after the admission of RR P 296,875
21. aAgreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P296,875) P 130,900P 17,537.50PP 89,062.50 (30% x P296,875) 106,600
(17,537.50)
Therefore, OO will pay PP P17,537.50
22. cTotal partnership capital (P113,640/1/3) P 340,920Less DD’s capital 113,640CC’s capital after adjustments P 227,280Adjustments made:
Allowance for doubtful account (2% x P96,000) 1,920Merchandise inventory ( 16,000)Prepaid expenses ( 5,200)Accrued expenses 3,200
CC’s capital before adjustments P 211,200
23. aAssets invested by CC: Cash:
Capital P211,200Add Accounts payable 49,600
Total assets (excluding cash) 260,800Less Noncash assets (96,000 + P144,000) 240,000 P20,800
Accounts receivable (96,000 – P1,920) 94,080 Merchandise inventory 160,000 Prepaid expenses 5,200 P 280,080Cash invested by DD 113,640Total assets of the partnership P 393,720
24. d Total partnership capital (P180,000/60%) P 300,000
GG’s Capital (P300,000 x 40%) P 120,000Less Cash investment 30,000Merchandise to be invested by GG P 90,000
25. aAdjusted capital of JJ:
Total assets (at agreed valuations) P 180,000Less Accounts payable 48,000 P 132,000
Required capital of JJ 180,000Cash to be invested by JJ P 48,000
Quiz-I1. P276,000 = (P480,000 – P228,000) + [P324,000 - (P480,000 – P228,000)]/3 2. Philip, P100,000; Ray, P100,000 and Sarah, P90,000 (P300,000 – P210,000)3. P330,000
P330,000 = P50,000 + (P310,000 - P30,000)4.
c The capital balances of each partner are determined as follows:
Apple Blue CrownCash P50,00
0Property P 80,000Mortgage assumed (35,000)Equipment P 55,000Amount credited to capital accounts P50,00
0P 45,000 P 55,000
5. P15,000(P190,000 – P160,000) x 1/2 = P15,000
6. P18,000 – the prevailing selling price which is also the fair market value.7.8. P15,000
P30,000 + P50,000 + P25,000 = P105,000/3 = P35,000 P50,000 - P35,000 = P15,000
9. P45,00010. P225,00011. P375,000 = P400,000 – P25,000 12. P50,000 13. P280,000
Pane SillsCash.................................................................................. P 40,000 P 30,000Machinery and equipment................................................. 100,000Building............................................................................. 350,000 Subtotal......................................................................... P140,000 P380,000Less: Liability assumed by the partnership....................... (100,000 )Capital balances, 7/1/06.................................................... P140,000 P280,000
14. dAdjusted capital of LL P 165,900Contributed capital of MM 82,950Total capital P 248,850
15. aFF, capital:
Unadjusted balance P 57,000 Adjustments:
Accumulated depreciation ( 1,500) Allowance for doubtful account (12,000)Adjusted balance P 43,500
GG, capital: Unadjusted balance P 49,500 Adjustments:
Accumulated depreciation ( 4,500) Allowance for doubtful account ( 4,500)Adjusted balance P 40,500
THEORIESCompletion statements: 1. accounting 2. GAAP 3. a. cash basis instead of accrual basis b. prior period adjustments
c. use of fair (or current) values instead of historical costd. recognition of goodwill in situations not involving business combinations
4. drawings 5. fair (or current) values 6. achieving equity among the partners 7. capital balances 8. professional corporation
True or False9 False 14
.True 19. False 24. False 29
.False
10.
True 15.
False 20. True 25. True 30.
True
11.
False 16.
False 21. False 26. False12.
True 17.
False 22. True 27. True13.
False 18.
True 23. False 28. TrueNote for the following numbers:17. Individuals, partnerships, and corporations are allowed to be partners in a partnership.19. All of the general partners are liable for all the partnership’s debts.21. Most small partnerships maintain their financial information using the tax basis.23., While the partnership does not pay income taxes, it is responsible for other taxes such as payroll
taxes and franchise taxes.24. The proprietary theory is based on the notion that the business entity is an aggregation of the
owners26. This is an example of the proprietary theory of equity.28. Any basis (i.e., carrying value, tax basis, or market value) can be used to value noncash assets
contributed to a partnership
MULTIPLE-CHOICE QUESTIONS31.
a 36.
d 41. c 46. a 51.
d
32.
B 37.
b 42. c 47. c 52.
b
33.
a 38.
c 43. a 48. b 53.
b
34.
e 39.
a 44. d 49. b
35.
d 40.
a 45. b 50. c
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